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Short Summary
Main recommendation: Chris Lopez leans toward selling his two 4%-debt condo rentals and investing passively, using a "lazy 1031 exchange" to offset taxes, rather than keeping them, refinancing, or moving into active room-by-room rentals. He frames the decision around return on equity and internal rate of return (IRR) because his goal is growth while staying hands-off with his time. He stresses there is no universal right answer.
Key Points
- The two condos were bought in 2020 for about $195,000 and $27,000 with 25% down each, total cash about $107,000; they now are worth about $275,000 each and rent for about $1,900 a month.
- Current return on equity is about 9%, which he considers too low for rental property compared with his stock and bond returns, so he treats sub-double-digit return on equity as a signal to act.
- Current IRR is about 25% if sold today, down from roughly 45% in 2021 and 55% in 2022, because low rates and rapid price and rent gains front-loaded returns in those years.
- Raising rents about $250 per condo would lift return on equity to about 12% but does not improve IRR, because about $100,000 of early appreciation outweighs a few hundred dollars a month later.
- A cash-out refinance into new properties at 7%-plus would raise return on equity to about 14.4% but drop cash flow from about $12,000 to about $1,000 a year, which he considers too risky.
- The passive portfolio is projected at about a 22% IRR versus about 17.7% for keeping the condos with a rent bump, and about $20,000 versus $11,000 in annual cash flow in 2025.
Details Worth Noting
- Concrete instructions: Run the numbers first (return on equity, IRR, cash flow) for keeping, raising rents, refinancing, a 1031 exchange, room-by-room rentals, and passive investing before deciding, since sale costs and commissions make unnecessary moves expensive.
- Concrete instructions: Consider raising rents toward market if tenants are stable, but recognize that a rent increase alone may not change IRR much if the property already has large early appreciation.
- Concrete instructions: Ask a CPA to estimate tax consequences before selling; here the estimate was about a 22% bracket and about $40,000 in taxes on the sale.
- Concrete instructions: Consider room-by-room rentals if you are early in your career and willing to self-manage, since the speaker's model doubled return on equity to about 21.5% and cash flow to about $24,000 a year.
- The passive plan allocates about $100,000 to a multifamily value-add fund, about $70,000 to a hard money fund (around 12% returns per the speaker), and about $50,000 to a Denver-area single-family development play.
- A "lazy 1031 exchange" is not a true 1031 exchange: it means selling and buying a new rental within the same year and using its depreciation to offset taxes, saving an estimated $10,000 to $15,000 in taxes.
- The speaker notes that commercial assets without 30-year fixed debt are seeing pain and opportunity, which he compares to a 2008-style crash in bigger assets.
Bottom Line
The decision depends on the investor's numbers, goals, and life stage; for this investor, selling and reallocating into passive investments fits growth and hands-off goals better than keeping, refinancing, or self-managing rentals.
